German auto major Volkswagen looks set to double down on its electric vehicle program, planning a low cost EV that could start from under €20,000 (about $23,000) while introducing as many as 50 models on the road across its brands in the coming years, as it looks to adapt to the shift to all-electric drivetrains. Other manufacturers from both the luxury and mass markets are investing heavily in EVs, considering their superior performance and relatively lower mechanical complexity, and early examples indicate that they are getting the EV formula right. In this note, we take a look at where EV pioneer Tesla could stand as competition from the likes of VW heats up the EV market.

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Trefis

VW’s EV Strategy is Focused On Scale And Platform Sharing Across Brands

Volkswagen is making multiple moves to adapt to the electrification of the automotive market. The company plans to leverage its massive scale, using a common platform called modular electric drive matrix that it intends to use across its brands including Audi, Seat, and Skoda. The company is also making changes to its manufacturing, with plans to revamp two German factories to produce electric cars, while shifting more labor-intensive assembly of internal combustion engines out of Germany to the lower-cost Czech Republic. The company has also been locking in battery supply, with contracts worth $48 billion with battery manufacturers. The company’s first mass-market EV, dubbed the I.D. Neo, is expected to launch some time in 2020, with other models including a sedan, a crossover, and an electric microbus likely to follow.

Tesla Should Hold Its Own As EV Market Expands

Tesla’s Model 3 production ramp made it the best-selling electric car in the United States over Q3 2018, and the fifth-best-selling sedan overall. The company is slowly but surely winning share from traditional vehicles, and it will likely hold its own as the EV market gets more crowded for multiple reasons. For one, Tesla has been investing heavily in its battery manufacturing facilities (as much as $5 billion through 2020 in its Gigafactory in Nevada), building scale and eliminating costs. The company is aiming for battery cell costs of under $100/kWh per year, which is likely to be well below the broader industry, giving the company an edge in terms of input costs. While VW has deals with battery makers, the manufacturing capacity for the agreements hasn’t been built out yet. Tesla should also have significant advantages in the self-driving space, considering its sizable (and growing) volume of real-time data from its vehicles, which helps its machine learning algorithms get better. The company has over 400k vehicles on-road compared to rival self-driving car companies, who only have a fraction of the number of test vehicles. Moreover, Tesla’s early mover advantage in the EV market, and the related brand recognition for the company and its CEO Elon Musk, could also help the company as the market gets more crowded.